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Cannabis Sales Tax

Cannabis sales tax is one of the most important items that cannabis retailers MUST pay attention to. Sales tax has become a much more popular topic for several reasons. One, from a political standpoint, you’re finding that it’s much easier to raise sales tax rates than it is to actually raise the interest tax. So, it’s a much easier way politically for government institutions to gain more money without the actual civilian or consumer paying much attention to the extra pay. A sales tax is a binding responsibility. In other words, there are no exemptions from the requirement of collectors meeting sales tax. When it comes to sales tax, we’re going to give a dispensary example. If you don’t properly count and collect the sales tax, you as a business owner are liable for the amount not collected. Let’s just say someone shows up at your doorstep and audits you and they assessed that you owe back sales tax. Your tax period supersedes any form of bankruptcy or dissolvement. The state is fully empowered to lobby your assets. And then they can also garnish your wages. They can do a lot of other things and it can follow you even if you close your business. So when it comes to taxes, generally it’s guilty until proven innocent, for starters. And secondly, they have no sense of humor in the United States. You can’t claim gross negligence, you can’t claim you didn’t know what the states’ laws are.

Understanding Cannabis Sales Tax

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Types of Taxes

States currently use three different types of marijuana taxes: as a fraction of price (it could be the retail or wholesale price of the products), based on the weight of the products (i.e., per gram), and based on the drug’s THC content (THC percentage). Some states use a different mix of these specific taxes. 

Fraction of Price

The percentage of price taxes are just like a retail shop sales tax. The customer will pay a tax on the product price and the retailer hands this back to the state. Some of the states impose a fraction of price tax on the wholesale purchase, but this assumes that the cost is then handed on to the customer in the ending product price. Some states will also let local towns impose a percentage of price tax—this will typically contain a maximum sales tax rate.

Weight of Product

The weight-based taxes are very closely related to cigarette taxes. Instead of taxing the whole pack of cigarettes, the cannabis tax is based on the weight of the cannabis products. States with weight- based taxes also will usually set different rates for different cannabis items. As with other wholesale taxes, it is presumed that most of the cost is then passed on to the consumer in the ending product purchase price.

THC Content

 THC Potency-based taxes are closely related to alcohol taxes. But, rather than taxing alcoholic drinks with a stronger percentage of alcohol at higher levels, the tax will be reflective of the cannabis item’s THC level. Illinois is currently the only legalized state with a THC potency-based tax.